Re: Clarification

Posted by Satya J. Gabriel on November 11, 2001 at 23:48:47:

In Reply to: Clarification posted by Kari Gilstad on November 11, 2001 at 23:32:59:

Sticky wages refers to the difficulty firm management has lowering wages if the company has contracts with labor unions. Such a contract reduces the flexibility of management in reducing wages until the contract expires and even then management has to negotiate changes in wage rates with the union (unless management has decided to "break" the union and pursue tactics similar to those we observed in Matewan). Thus, unions make wages sticky downwards (resistant to falling).

The phrase "automatic stabilizers" refers to government policy tools that are built into the budget process and automatically release funds for use by citizens when employment falls and reduces available funds for use by citizens when employment rises. These automatic stabilizers include, as was discussed in lecture, unemployment compensation, welfare, food stamps, and income taxes. The presence of these automatic stabilizers reduces the negative effects of a recession and dampens the positive effects of economic growth (thus reducing the chances of the economy "over heating").

And, by the way, the spelling is Keynes, not Canes (although he's dead and may not care, one way or the other).

: I was wondering if the idea of Canes' "sticky wages" could be clarified. I am not sure what is being said by this. Also the Automatic stabilizers. I understand that they control the market drop and slow down the collapse, but how? By doing what? I'm just not clear on that.

: I was also wondering, along the lines of someone elses posted message, if the Great Depression could have been prevented. Surely the only man that saw something coming wasn't JP Morgan. Just because he was the richest man, doesn't make him the smartest (although I could be wrong). I just find it hard to believe that if that one man could have had an idea that somehting was going to happen with the economy, then why couldn't other businesses have seen it as well? And even if they (the businesses) had seen it, i'm not sure that would have done much to prevent the Depression-just wondering.